A company expanding rapidly, mainly by acquiring more debt at a time when there is mayhem/distress in the market remind me of an old- story of Daweoo corporation. If you are old enough to remember, Daewoo corporation was a big South Korean Chalobol, having multibillion-dollar assets in the late 1990âs. The owner of the company was a Korean war survivor whose family rarely had enough to feed for others during his childhood days. He (Owner) not only survived but made Daewoo corporation as one of the biggest company not only in South Korea but globally.
I remember during one of the crises in the 1990âs, Daewoo started acquiring companies/assets by issuing more debt. He had a fantastic quote which caught my attention âIf you shiver, you will feel coldâ. This motivated him to acquire debt funded asset. And no so long after that, Daewoo faced financial difficulties, I suppose due to the Asian financial crisis. His biography-Every Street Is Paved With Gold: The Road to Real Success- is a wonderful read, for those who love biographies.
I see something similar happening with PEL (not in term of facing bankruptcy, to be clear). The overall debt market is under stress, and the real estate market, in particular, is undergoing sea changes. In that market, PEL is expanding at breakneck speed and that too as an NBFC with more debt. Of course, it may not end up like Daweoo, but there is an inherent risk in expanding in risk market.
On the other hand, this could be a game changer for the company. Real estate is a difficult market to operate it as it involves litigations, delay, fraud and many of the real estate developers are âGundasâ having strong political connections. This means it is a relatively uncontested area, like banks, NBFC or shadow banking channel plays a part in it, but extreme cautions.
If PEL has build expertise in it, as they are clamming and demonstrating, it could be a niche they could exploit in years to come. Plus, they have guts, expertise, skills as well as the legal and financial power to take on builder or projects, which not many fancier would venture into. Rasesh Shah of Edelweiss has spoken some high-level number for real estate financing in one of his interviews. I think they are highly relevant here and will update once I find it out.
In my view PEL (Financial) demand is not a problem this is true for most of the NBFC. The differentiating factor is an execution, which PEL has a good track record, though even if not long or seasoned. If their execution is as they are claiming, I think PEL will be a force to reckon with in Financial services in the next few years.